NEW YORK (Reuters) – When Marty Weinstein decided to quit smoking, he took a friend’s advice and tried electronic cigarettes rather than government-approved nicotine replacement products.

Weinstein, 58, has gone from a pack a day nine months ago to the equivalent in nicotine of four or five cigarettes. The e-cigs have a familiar look and feel, and quench his desire to hold on to a cigarette and puff.

“I fully understand I’m still addicted to nicotine,” said Weinstein, a Connecticut taxi driver who had smoked for more than 20 years. “But I’m now so much healthier.”

E-cigarettes, metal tubes that heat liquids typically laced with nicotine and deliver vapor when sucked, are transforming the market for smoking cessation products and slowing the $2.4 billion in global sales of long-standing aids such as nicotine patches and gums. But their impact on health remains unclear, experts say, raising difficult questions for regulators who are starting to impose limits on e-cigarette use.

E-cigarette makers in the United States are barred from explicitly marketing the products as smoking cessation devices, but have found ways to appeal legally to smokers who are thinking of quitting.

“You never say ‘quit’ because it’s not approved by the FDA as a smoking cessation device,” said Jose Castro, the chief executive of A1 Vapors in Miami, referring to the U.S. Food and Drug Administration.

A1 Vapors runs an ad on its website urging customers to “kiss tobacco goodbye” and give themselves the “gift of your life. literally”, adding a disclaimer that e-cigs are not a smoking cessation product.

E-cigarettes, or e-cigs, have only come into widespread use in the past few years, but have already made inroads into traditional quitting therapies.

About a third of British smokers trying to quit were using e-cigarettes, according to a University College London survey in January of 1,800 people, including 450 smokers.

E-cigs are used by almost twice as many people as government-approved nicotine gums, lozenges and patches, according to the survey. That was a reversal from 2011, when only about 5 percent of people were using e-cigarettes and more than 30 percent used over-the-counter products.

Similar data is not yet publicly available for the United States.

Worldwide sales of all nicotine replacement therapies grew just 1.2 percent last year, to almost $2.4 billion, according to data from commercial researcher Euromonitor. U.S. sales, at $900 million, grew 0.2 percent, and are expected by Euromonitor to drop this year by that amount.

Big tobacco companies like Altria, Lorillard and Reynolds American have rushed into the e-cig market. The entire U.S. market for “vapor devices” such as e-cigs grew in 2014 by 40-50 percent to $2.5 billion to $3 billion, Euromonitor said. The global market is worth $5 billion.

RULES ON E-CIGS TIGHTENING

Mark Strobel, a consumer health analyst at Euromonitor, said e-cigarettes have slowed nicotine replacement therapy sales, along with relatively high prices and a shrinking population of smokers, especially in the United States.

“For some consumers it has been a direct substitution.”

GlaxoSmithKline (GSK) and Johnson & Johnson don’t break out the data on their smoking cessation products, which are relatively small parts of their sales, but the companies have noted the change.

“It’s definitely taken a bit of our market, no question at all – but there’s a lot of competition in that space,” GSK chief executive Andrew Witty told Reuters in an interview this month.

There is little long-term safety data on e-cigarettes, although some healthcare professionals say they may be better for consumers than tobacco cigarettes because they have no carbon monoxide and fewer cancer-causing chemicals.

A growing number of states, cities and countries – including Israel and Australia – are considering or have approved legislation to ban or limit the devices or the liquids, which come in exotic flavors from bacon to bubble gum.

California’s top public health official on Wednesday slammed e-cigs as addictive, saying they were leading to nicotine poisoning among children and threatened to unravel the state’s decades-long effort to reduce tobacco use.

Earlier this week, California introduced a bill that would ban the devices in public places, and New York Gov. Andrew Cuomo proposed a similar ban earlier this month.

Last year, the World Health Organization recommended that smokers should be encouraged to try already approved treatments rather than e-cigarettes. The FDA last April proposed rules for electronic cigarettes that would, among other things, ban sales to those under 18, but not restrict flavored products, online sales or advertising.

MAKING SMOKING COOL AGAIN?

Many health experts worry that e-cigarettes will become established as smoking cessation aids before enough research is done to determine their health impact. Another concern is that they may stop people from quitting tobacco completely and deter people from trying potentially more effective methods.

Dr. Albert Rizzo, senior medical advisor for the American Lung Association, said that when patients ask about the products, he tells them it’s good that they are trying to quit but: “We don’t know enough to recommend them.”

Some healthcare professionals said that even if they are not opposed to e-cigarettes, they are concerned about their marketing, especially to young people.

The Federal Trade Commission declined to comment on specific e-cig ads but said “advertising must be truthful, non-deceptive and supported by competent and reliable scientific evidence.”

E-cigs risk bringing the “cool” back to smoking, reversing the progress over decades in which smoking has become less socially acceptable, said Dr. Robert K. Jackler, a professor at Stanford University School of Medicine.

“A lot of us are very concerned about the renormalization phenomenon,” he said. “These glamorize smoking behavior.”

Still, some doctors point to the low efficacy of traditional ways to quit smoking.

“They have better results than placebos, but their rates of success are quite low,” said Dr. Michael Siegel, a professor at the Boston University School of Public Health, who said e-cigarettes are an alternative, especially for people who have tried the conventional therapies and failed.

(Reuters) – New York restaurant owner Jeremy Merrin has seen business droop in recent weeks at his Havana Central eatery in Times Square. The reason: not enough international tourists.

“We’re fighting a double-whammy,” said Merrin, who owns three restaurants and is on the board of the New York State Restaurant Association. “Not only is the dollar going up and making things more expensive, Europe as a whole is not doing well.”

International tourists to the United States spend more than $200 billion annually on travel, hotels, dining and shopping, but growth in 2015 is expected to decelerate as would-be visitors balk at the stronger dollar and grapple with weaker economies at home.

“That could impact the length of their stay and the composition of their spending in the United States,” said David Huether, senior vice president, research, at the U.S. Travel Association, which sees the influence of the stronger dollar becoming more severe in 2015′s second half.

The problems of the tourism industry are not the only ill effects of currency appreciation. The strongest dollar in a decade, by some measures, is causing some U.S. manufacturers to cut financial forecasts as the costs of U.S. exports rise. U.S. companies with foreign operations also will see lower revenue as offshore earnings are converted back into dollars.

Travel experts hope some of the drop in spending in the United States will be made up for by increased tourism from China, where visitors can now get a visa that lasts 10 years. Lower gas prices and a stronger U.S. economy also may encourage more domestic travel, they said.

Still, some retailers, including Tiffany and Co (TIF.N: Quote, Profile, Research), are already feeling the impact.

“The strong dollar has created headwinds for foreign tourists in the United States,” said Mark L. Aaron, vice president of investor relations at Tiffany, which warned of slower sales to tourists at its flagship New York store.

“Tiffany is the first poster child of this issue,” said Craig Johnson, president of consulting firm Customer Growth Partners. “A lot of retailers might be hit to some degree.”

He said the trend could slow the growth of other successful luxury brands that depend heavily on tourists. “We believe that Michael Kors (KORS.N: Quote, Profile, Research) and Kate Spade (KATE.N: Quote, Profile, Research) will still be showing solid growth, but not the robust, double-digit we’ve seen over the last couple of years,” he said.

Kate Spade did not respond to a request for comment. Michael Kors declined to comment.

RISING DOLLAR

The dollar has climbed about 15 percent against the yen and the euro over the past six months. It is up about 6 percent against the won.

Chris Gaffney, senior market strategist at EverBank Wealth Management in St. Louis, expects the strong dollar will affect a number of U.S. sectors that serve foreign tourists, including airlines, hotels, and retail. Companies with tourism operations abroad could see relief because “For American tourists, Europe is on sale,” he said.

Morningstar equity analyst Paul Swinand said department store chains with a large presence in some of the “gateway cities” could see a 1 percent or 2 percent slip over the next year because of lower tourist spending.

A 10 percent appreciation in the dollar typically results in about 2 percent fewer international visitors annually, said Adam Sacks, president of consulting company Tourism Economics, which expects the number of international visitors to climb by 3.5 percent in 2015, compared with 5 percent annual growth over the past 10 years.

Growth in the number of foreign tourists coming to the United States had already started to slow last year, largely because of economic problems in home countries. The number of Japanese visitors through last October was 4 percent lower than the previous year, according to the most recent Department of Commerce numbers. The number of Venezuelans was off 18 percent, but Mexican and Chinese tourists both were up more than 20 percent.

“Despite the higher dollar, the Chinese have saved money to travel,” said Evan Saunders, chief executive and co-founder of Attract China, which is expecting many more Chinese tourists this year.

He said the Chinese tourists his company works with are eager to try everything from Shake Shack (SHAK.N: Quote, Profile, Research) to outlet malls. “They want to do what they have seen in TV shows or American movies,” he said.

New York (Reuters) – The American Red Cross risks damaging the reputation of the global Red Cross brand because of its refusal to stop accepting donations from tobacco companies, a top official with the humanitarian network said.

These concerns are prompting the International Red Cross and public health organizations to press the U.S. group to end its longtime policy of taking tobacco money, Reuters has learned.

The International Red Cross, which recently rolled out a global disease prevention program with a strong anti-smoking component, hasn’t accepted tobacco donations since 2008. Most of the group’s 189 national affiliates don’t accept money either, but the powerful U.S. member does, as do about half a dozen other countries, including Germany, Russia and Vietnam.

While precise figures are not available, the American Red Cross and its U.S. affiliates have received at least $12 million from tobacco companies such as Altria Group, Reynolds American and Philip Morris International since 2001, according to Red Cross tax records and tobacco company press releases and annual reports.

An American Red Cross spokeswoman, Laura Howe, declined to comment on the dispute with its parent body – whose guidelines are not binding on its affiliates – but said it was happy to accept any funds that support its efforts to assist disaster victims. She also declined to say how much it received from each company.

International Red Cross officials say that by accepting the donations, the U.S. group risks damaging not only its own reputation but that of the entire global humanitarian network. Some public health advocates agree, saying there is a contradiction between the Red Cross’s mandate to aid the vulnerable and its acceptance of money from an industry whose product may cause death.

Matthias Schmale, under secretary general for the International Federation of Red Cross and Red Crescent Societies, said officials have talked with American Red Cross officials and asked them to drop the tobacco funding.

“We have been very clear about the potential reputational damage not just for them but for all of us,” Schmale said in a telephone interview from Geneva. “So far we have not taken the route of public condemnation. We want to respect that they are an important supporter of ours.”

He said the parent body would continue “to put pressure” on the American Red Cross to change its policy, although he would not say what form that pressure would take.

Despite the controversy, there has been little public debate about the donations. And the dispute between the American Red Cross and its parent body has not been reported until now.

How the dispute is resolved could be felt beyond the American Red Cross. Anti-tobacco activists hope that if the U.S. group bows to pressure, it could influence other nonprofits to reject millions of dollars in donations.

John Stewart of Corporate Accountability International, a watchdog group, said if the American Red Cross stopped accepting tobacco money it would undercut the tobacco industry’s global public relations strategy to gloss over its “tarnished image.”

PUBLIC RELATIONS BOOST?

Critics argue that by accepting donations from tobacco interests, the organization, one of the largest charities in the United States with 2013 revenue of $3.4 billion, is muddying its public health mission while providing the tobacco industry with a public-relations boost.

Major U.S. and European tobacco companies including Reynolds American, Altria and Lorillard as well as Philip Morris International and British American Tobacco Plc acknowledged the donations and said they were among some of the millions of dollars they give away.

“When there are important disasters, and people have significant needs, that is the right thing for corporations to do,” said Altria spokesman David Sylvia.

Howe, the American Red Cross spokeswoman, said in an email that all donations “are important to the American Red Cross and the disaster victims they assist.” “Collectively, donations of all amounts allow us to provide disaster victims with food, shelter and emotional support.”

Asked about any pressure from the international body to stop taking money from tobacco interests, Howe said: “As a matter of practice, we don’t share the details of private conversations between Red Cross officials.”

GROUPS SEND LETTER

The International Red Cross has been encouraging its U.S member to drop the funding since 2008, but it stepped up the pressure in 2014 after implementing a new healthy living program that includes smoking cessation.

Pressure on the American Red Cross is coming on other fronts as well. On Dec. 19, some of the largest U.S. public health advocacy organizations, including the Public Health Law Center and Action on Smoking & Health, wrote to American Red Cross President Gail McGovern, urging the organization to stop taking tobacco donations.

“The Red Cross/Red Crescent Movement is respected around the world for protecting life, health and human dignity,” the letter said. “To lend its enormous credibility, connection and influence to an industry that sells and promotes a product that kills 6 million people a year is a serious violation of the most basic principles of public health.”

The American Red Cross would not comment on the letter, which has not been made public before.

WHY TAKE THE MONEY?

The tobacco money represents a steady but small percentage of the American Red Cross’s annual contributions – it took in more than $1 billion in donations in fiscal 2013.

Tobacco companies have been donating to the American Red Cross in some instances as far back as the 1960s, but confirming the size and dates of donations made before 2001 is difficult because historical documents are not easily obtainable.

The Red Cross may take the money from tobacco companies because like most nonprofits it is under pressure to raise money each year for its general fund whether or not there is a disaster that brings in donations, said Ken Berger, president and CEO of Charity Navigator, which rates charities for donors.

“One reality is no matter what size a nonprofit is, they are usually strapped for cash,” he said. “To have money that is unrestricted and could be used for general operations are the most precious (donations).”

Altria’s Sylvia said it has donated to the organization for decades and now contributes $500,000 annually to the American Red Cross Annual Disaster Giving Program. It also has provided many one-time donations after specific disasters.

Reynolds American, its foundation and subsidiaries have given more than $1 million to the American Red Cross during the last five years, according to the company. Philip Morris International has given $123,000 since 2008.

(Reporting By Jilian Mincer in New York; Additional reporting by Ece Toksabay in Turkey and Thomas Wilson in Japan; Editing by Eric Effron and Ross Colvin)

Dec 6 (Reuters) – Amarilis Sinchi visited Macy’s at a New
Jersey mall on Black Friday, but she waited until this week to
purchase the red fleece pajamas she had her eye on.

The 21-year-old student ended up paying $13 at the
department store, down from $30 on Friday, which has
traditionally been the best day for deals during the U.S.
holiday season. “The prices keep getting better,” she said,
planning a return to another store – Kohl’s – which had
dropped the price on LEGO toys.

Retailers started discounting early this holiday season, but
that hasn’t stopped them from stepping up the offers now,
particularly on apparel. The increasingly fierce struggle for
consumer dollars online is adding to pressure for lower prices
at stores, where mobile device-toting customers compare prices
as they shop.

Many deals are being extended and deepened, visits to malls
and data from price tracking firms show, and analysts see many
retailers’ margins being compressed, especially in apparel.

“We’re experiencing post-holiday promotions even before the
holiday is in full swing,” said Steven Barr, U.S. Retail and
Consumer Leader at consultants PwC, who has not seen such a high
level of deals at this stage of the season before. On one trip
to a mall, an apparel store dropped a discount from 40 percent
to 50 percent while he ate lunch.

“We expect this is going to be the most promotional holiday
on record,” challenging profits in the sector, he said.

Consumers remain cautious about spending despite lower
gasoline prices and an improved jobs and housing market, surveys
by Reuters/Ipsos show. Wages growth has been very limited while
food and healthcare costs have risen.

People do generally appear to be getting more price
conscious. In a survey this summer conducted by PwC, 84 percent
of respondents said they chose a store because of the prices it
offers, up from 74 percent in 2013.

The 10 retailers with the most traffic and sales more than
doubled the number of discounted items online during the week
after Black Friday, according to data from TrackIf, a service
that tracks prices across nearly 2,000 retail websites.

To be sure, retailers with unique or popular products have
avoided big price cuts, and there is substantial variation
between companies and types of merchandise. Many retailers have
gone into the season with less inventory than previous years,
and mainstream forecasters expect holiday sales will rise around
4 percent for the year, despite the discounting.

But already some retail earnings and stock prices are being
hurt by weak sales and the increased level of discounting, in
particular at teen clothing store chains. Teen buyers preferring
to spend on phones and gadgets rather than clothes has been
hurting that sector for some time.

SOME RETAILERS HURT BADLY

Shares of teen retailer Aeropostale dropped
Wednesday to a 52-week low after it reported a
larger-than-expected fourth-quarter loss. Like apparel retailers
Express and Abercrombie & Fitch, Aeropostale
was hurt by discounting and slowing demand. On Friday, teen
retailer Delia*s said it would file for bankruptcy.

“The gross margins are being pressured,” said Nomura retail
analyst Simeon Siegel. Apparel retailers, he said, can’t cut
prices much more than 50 percent without losing money, so many
are trying to win sales by extending the time they offer
discounts.

Companies that track discounts can discern a significant
change. Last year, online prices from traditional retailers were
lowest on Black Friday for a variety of products in many
categories, according to Market Track. But this year, for
instance, it found prices of kitchenware fell in the days after
Black Friday, by 13 percent at Sears and 47 percent at Macy’s.

ShopSavvy, which tracks merchandise and prices for the top
100 online and in-store retailers based on their traffic and
sales, compared discounts in five categories of items at 32 of
these merchants on Black Friday and early this week. Computers,
clothing and home and garden products showed widening discounts.
Electronics and entertainment products were cheaper on Black
Friday itself.

ShopSavvy CEO John Boyd said that the rise of mobile and
online commerce was driving retailers to spread discounts beyond
Friday. This year’s move toward post-Black Friday bargains was
“materially stronger” than previous years, he said.

Most stores also didn’t wait until the holiday weekend to
start discounts, said ShopSavvy, which also found that many of
the big retailers were offering the same deals as online
retailer Amazon.com.

Ecommerce researcher Profitero found online discounts of
some 41,000 toys, electronics and sporting goods at Amazon, Best
Buy, Toys R Us and Walmart held steady on this
week’s Cyber Monday compared with last week’s Black Friday.

A Macy’s spokesman said the retailer plans its promotions in
advance. Other retailers declined to comment on holiday pricing
strategies.

Standing in the Newport Centre mall in Jersey City, New
Jersey, that he has visited regularly over the last eight years,
Moody’s analyst Charles O’Shea said that while he’s seen strong
sales of electronics at stores like Best Buy and Target
, many apparel retailers already were marking down
merchandise.

Walking into a Sears store, he flipped over tag after tag,
showing deep discounts on almost all apparel. Some stores, such
as American Eagle, were offering shoppers the chance to
buy one item and get 50 percent off a second.

Standing outside an Aeropostale, O’Shea pointed at a sign
advertising up to 70 percent off. Inside, stacks of neatly
folded sweaters were marked down to $14 from $44.50.

That’s a good indication that Thanksgiving holiday weekend
sales “weren’t what they wanted,” he said. “They have to get
stuff out of there.”

(Reporting by Jilian Mincer in New York and Nandita Bose in
Chicago.; Additional reporting by Samatha Sunne in New York and
Nathan Layne in Chicago.; Editing by Peter Henderson and Martin
Howell.)

(Reuters) – Almost two thirds of adults won’t spend more this holiday season despite lower gas and fuel costs, a new Reuters/Ipsos poll shows, in a bad sign for retailers looking for an extra boost in gift buying from cheaper prices at the pump.

The recent slide in gas prices and signs of economic improvement had raised the possibility of stronger holiday sales.

But the survey of 1,707 adults conducted November 12-17 found that almost 60 percent remain cautious about spending because of “economic uncertainty.” See graphic link.reuters.com/huc53w

“We live on a budget so we have a certain amount for groceries, a certain amount for birthdays, a certain amount for holidays,” said clerical worker Christine Bogolawski, 44, of Cumberland, Rhode Island, who plans to spend about the same as last year and plans to bank what she saves at the pump. “It’s only a few cents per fill up,” she said.

Bogolawski is not alone in prioritizing savings. Americans learned to spend less during the recession, and they’re not quitting those habits quickly. The savings rate rose slightly in September, while wages remained almost unchanged, and meat prices jumped in October even as the wholesale gasoline costs fell 5.8 percent for the month.

Still, the unemployment rate dropped in October to 5.8 percent, a 6-year low, and the National Retail Federation estimated holiday sales would climb by 4.1 percent, versus a 3.1 percent climb last year.

RETAILERS HOPE

Several retailers including Wal-Mart, Target and Sears Holdings hope to benefit from lower gas prices, which recently fell below $3.00 for the first time since 2010.

“Fuel prices absolutely help,” John Mulligan, CFO of Target, said on a Wednesday call with reporters after the company posted a quarterly profit above expectations.

But gas prices are no guarantee of better sales, he said. “I think there is a lot of cross-current mixed signals for consumers, and we expect them to be very focused on price as they have been, very focused on promotions.”

The number of shoppers expecting to spend less this year than last outweighed those who expected to spend more in every category in the Reuters poll, except food, which was nearly balanced. Some 30 percent expect to spend less on electronics, 37 percent less on jewellery and about a quarter less on clothes and toys. Almost 20 percent said they would spend more on clothes, 14 more on electronics and toys, and only 7 percent more on jewellery.

Similar to last year, 10 percent of consumers plan to shop mostly at department stores such as Macy’s, J.C. Penney, Nordstrom and Kohl’s, but only 24 percent plan to spend mostly at discount stores, such as Walmart, Target and Kmart, down from 31 percent at this time last year. This year 40 percent expect to use a mixture of stores, compared with 35 percent last year.

The online poll has a credibility interval, a measure of precision, of plus or minus 2.7 percentage points.

EARLIER SALES

Americans also have learned in recent years to find the best deals on the internet.

“You don’t have to walk into the mall to see who has the best prices,” said Charlie O’Shea, senior retail analyst at Moody’s, which expects holiday sales to be slightly better than last year.

That’s forced stores to not only compete on price but also extend the shopping season in the hopes of getting consumers to shop more often and spread their spending over several paychecks, said analysts.

Walmart, Amazon and others started promotions just after Halloween. By Black Friday, the day after Thanksgiving, 34 percent of retailers will have run most of their holiday season promotions, according to a survey by consultant firm BDO USA. For years, Black Friday was considered the kickoff to the holiday shopping season.

Nearly two-thirds of retailers plan to offer more discounts and promotions this year than last, BDO said.

A quarter of shoppers said in the Reuters poll that they plan to use in-store pick-up. Retailers hope that these consumers will buy other merchandise, with perhaps less focus on price, during pick up.

“If you’re physically there, even if you know it’s $5 cheaper somewhere else are you going to wait in another long line?” said Ted Vaughan, a partner in the Retail and Consumer Products Practice at BDO.

LONDON/NEW YORK (Reuters) – As electronic cigarettes flew off shelves on both sides of the Atlantic in recent years, investors flocked to a business some hope will be the future for tobacco.

Now sales growth is slowing from a 2011 peak and private funds are more cautious about the smokeless devices, making it harder for independent e-cigarette firms to raise capital and hitting their share prices.

The entry of Big Tobacco and a push for tighter regulation has led outside investors to question the potential of the e-cigarette market, where sales are at a modest $3.5 billion (£2.1 billion) worldwide but still growing faster than for most consumer goods.

“Everybody knows regulation is coming so investors are concerned about investing in companies that won’t be able to meet those rules,” said Craig Weiss, CEO of NJOY, one of the more established e-cigarette makers, which sources say could pursue an IPO or a takeover by tobacco or healthcare firms.

The World Health Organization last month called for bans on indoor use, advertising and sales to minors of the metal tubes that heat nicotine-laced liquid into vapour, arguing that the jury was still out on how safe they were.

This would go further than the European Union’s rule coming into force in 2016 to ban advertising and regulate nicotine content, and a proposal by the U.S. Food and Drug Administration (FDA) to ban sales to minors.

“For smaller companies, it is challenging – they have to answer for FDA uncertainty and questions about Big Tobacco,” Weiss said.

Gamucci, one of Britain’s earliest e-cigarette makers, has been seeking capital for about 12 months, while rival E-Lites weighed options for a year before agreeing in June to sell out to Big Tobacco’s No. 3 player, Japan Tobacco.

With sales of traditional cigarettes declining in many countries due to health concerns, almost all the major tobacco companies have either bought e-cigarette companies or set up in-house development.

This means the independent players must be extra nimble.

Gamucci CEO Tony Scanlan, who worked at a leading tobacco company for 17 years before branching out, told Reuters Gamucci is close to securing an injection of about 20 million pounds and may weigh going public when it gets bigger.

It is planning a new range that is refillable rather than disposable in line with market trends and is considering marketing products as medical devices, as British American Tobacco’s Nicoventures unit is doing.

Innovation is now key to survival in a business whose products have piqued consumer interest, but not loyalty.

“Last summer … you were seeing a big build-up of consumer trial, but that trial hasn’t come through to regular usage,” said Martin Deboo, an analyst with Jefferies.

He cited research showing that half of all smokers had tried e-cigarettes but only 10 percent said they were regular users.

“The first generation ‘cig-a-likes’, from a smokers’ point of view, have only been a partial solution,” Deboo said.

Lorillard, America’s No. 3 tobacco firm and No. 1 e-cigarette firm, said e-cigarette sales fell 35 percent to $37 million in the quarter to June 30, but its retail market share fell only 1.1 percent, which suggests the entire category shrank dramatically.

“APPLE PIE” TO “ZOMBIE JUICE”

Some vapers complain that with the slim, disposable e-cigarettes, poor vapour quality makes the nicotine hit weaker than with tobacco, that battery life is too short, and that they are too pricey, at as much as $15 a day for a very heavy user.

As such, they have been losing share to next-generation models that pack a bigger puff at a lower price in a market of which 70 percent is in the United States and Europe.

“You’d be hard-pressed for someone to invest today in the smaller, independent e-cigarette companies because it’s tough to know whether they’ll ever get distribution,” said a source financially involved in the sector.

“Investors are shifting their attention now, trying to figure out what other areas they should be investing in.”

One such area is so-called vaping products, a rainbow of do-it-yourself tanks, batteries and e-liquids.

U.S. financial services giant Wells Fargo estimates that business at $1.1 billion of a $2.5 billion U.S. vapour market including e-cigarettes. Particularly bullish, it says vaping could surpass smoking in the U.S. in the next decade.

Data gatherer Nielsen, which tracks retail sales but not online or at speciality “vape shops”, says that for the 52 weeks ended August 23 e-cigarette and tank revenue in the US grew 19 percent. But that was down from 125.5 percent growth for the same period ending in 2013, 133 percent in 2012 and almost 1,103 percent for 2011.

Some predict regulation may slow that down further due to fears vaping may become a gateway to smoking for kids, with e-liquids in thousands of flavours with names ranging from the quaint Apple Pie to the outlandish Zombie Juice.

A recent drop in the value of a group of e-cigarettes companies trading mostly over-the-counter on the Pink Sheets in the U.S. highlights the growing caution.

Nine companies had a combined market capitalisation of $743.3 million at the close of trading on Wednesday, down nearly 60 percent from a March peak of $1.84 billion, though still up on a year ago.

Electronic Cigarettes International Group, by far the largest, saw its shares close at just $5.50 on Wednesday, down from the high teens in March.

It went public in a reverse merger last year, and has since done a string of deals as small players seek consolidation in a market still home to hundreds of brands.

“The key driver is that by doing this, they’re better able to compete with the tobacco companies,” said Mark Winkler of Fleming Family & Partners, who advised British e-cigarette maker Skycig on its sale to Lorillard in October for 30 million pounds ($49.58 million) plus future payments.

In May, Michigan-based ECIG filed for a follow-on public offering to raise up to $149.5 million and in July announced a $20 million investment from an arm of Egypt’s Mansour Group.

Shares in the second-biggest traded firm, 22nd Century Group, have more than halved since its March high of $6.34, even though its shareholders at the time of filings this summer included funds managed by the likes of Vanguard, Fidelity and TIAA-CREF.

BIG TOBACCO VS PHARMACEUTICALS?

The major tobacco companies do not face the same pressure, since their investments in the sector are tiny compared with the size of their traditional businesses and serve as a hedge against declining tobacco sales.

British American, the world’s No. 2 tobacco firm, set up a unit in 2011 to develop smokeless alternatives and bought UK based CN Creative the following year. It sells an e-cigarette called Vype in Britain, while Reynolds American, in which it holds a large stake, is rolling out an e-cigarette called Vuse across America.

U.S. Marlboro maker Altria Group bought Miami-based Green Smoke for $110 million in April, and in July Lorillard agreed to sell Skycig and Blu, which it bought for $135 million in 2012, to Gauloises maker Imperial Tobacco.

Before exploding in the last four years, e-cigarettes were simple devices largely sold on the Internet, so even though there was venture capital and private equity interest, capital needs were relatively modest.

Now that they grace shelves all along the high street, many companies must invest in slotting fees, quality control, supply chain and marketing to drive and keep market share. That crimps cash flow, making them less attractive to private equity firms who need near-term profits to service their debt, said Winkler.

And while some independent companies may still be able to sell out to a bigger company or go public, he said there is concern that many others may get trampled, leaving investors with no exit strategy.

“There will be some independents who will be very successful, but I anticipate that many may struggle to achieve an exit at the end of the day,” Winkler said.

The healthcare industry may be some help.

NJOY, which has had several fund injections from private equity and venture capital funds and others including Silicon Valley heavyweight Sean Parker, has attracted interest from both major tobacco and pharmaceutical firms, according to two sources familiar with the matter. It was not clear which companies, or whether any talks took place.

Buying e-cigarette makers may eventually make sense for healthcare companies since they threaten the nicotine replacement therapies offered by the likes of Pfizer and GlaxoSmithKline.

BAT’s Nicoventures unit, in conjunction with Consort Medical and Kind Consumer, has had a new nicotine inhaler called Voke licensed in the UK as a medical product, the companies said on Friday.

NJOY, which just launched new lines of rechargeable and vape products in flavours like blood orange and butter crunch, declined to comment on any such approaches, but CEO Weiss said, “if the right type of investor approached us, I would have to listen”.

LONDON/NEW YORK, Sept 12 (Reuters) – As electronic
cigarettes flew off shelves on both sides of the Atlantic in
recent years, investors flocked to a business some hope will be
the future for tobacco.

Now sales growth is slowing from a 2011 peak and private
funds are more cautious about the smokeless devices, making it
harder for independent e-cigarette firms to raise capital and
hitting their share prices.

The entry of Big Tobacco and a push for tighter regulation
has led outside investors to question the potential of the
e-cigarette market, where sales are at a modest $3.5 billion
worldwide but still growing faster than for most consumer goods.

“Everybody knows regulation is coming so investors are
concerned about investing in companies that won’t be able to
meet those rules,” said Craig Weiss, CEO of NJOY, one of the
more established e-cigarette makers, which sources say could
pursue an IPO or a takeover by tobacco or healthcare firms.

The World Health Organization last month called for bans on
indoor use, advertising and sales to minors of the metal tubes
that heat nicotine-laced liquid into vapor, arguing that the
jury was still out on how safe they were.

This would go further than the European Union’s rule coming
into force in 2016 to ban advertising and regulate nicotine
content, and a proposal by the U.S. Food and Drug Administration
(FDA) to ban sales to minors.

“For smaller companies, it is challenging – they have to
answer for FDA uncertainty and questions about Big Tobacco,”
Weiss said.

Gamucci, one of Britain’s earliest e-cigarette makers, has
been seeking capital for about 12 months, while rival E-Lites
weighed options for a year before agreeing in June to sell out
to Big Tobacco’s No. 3 player, Japan Tobacco.

With sales of traditional cigarettes declining in many
countries due to health concerns, almost all the major tobacco
companies have either bought e-cigarette companies or set up
in-house development.

This means the independent players must be extra nimble.

Gamucci CEO Tony Scanlan, who worked at a leading tobacco
company for 17 years before branching out, told Reuters Gamucci
is close to securing an injection of about 20 million pounds
($32.4 million) and may weigh going public when it gets bigger.

It is planning a new range that is refillable rather than
disposable in line with market trends and is considering
marketing products as medical devices, as British American
Tobacco’s Nicoventures unit is doing.

Innovation is now key to survival in a business whose
products have piqued consumer interest, but not loyalty.

“Last summer … you were seeing a big build-up of consumer
trial, but that trial hasn’t come through to regular usage,”
said Martin Deboo, an analyst with Jefferies.

He cited research showing that half of all smokers had tried
e-cigarettes but only 10 percent said they were regular users.

“The first generation ‘cig-a-likes’, from a smokers’ point
of view, have only been a partial solution,” Deboo said.

Lorillard, America’s No. 3 tobacco firm and No. 1
e-cigarette firm, said e-cigarette sales fell 35 percent to $37
million in the quarter to June 30, but its retail market share
fell only 1.1 percent, which suggests the entire category shrank
dramatically.

“APPLE PIE” TO “ZOMBIE JUICE”

Some vapers complain that with the slim, disposable
e-cigarettes, poor vapor quality makes the nicotine hit weaker
than with tobacco, that battery life is too short, and that they
are too pricey, at as much as $15 a day for a very heavy user.

As such, they have been losing share to next-generation
models that pack a bigger puff at a lower price in a market of
which 70 percent is in the United States and Europe.

“You’d be hard-pressed for someone to invest today in the
smaller, independent e-cigarette companies because it’s tough to
know whether they’ll ever get distribution,” said a source
financially involved in the sector.

“Investors are shifting their attention now, trying to
figure out what other areas they should be investing in.”

One such area is so-called vaping products, a rainbow of
do-it-yourself tanks, batteries and e-liquids.

U.S. financial services giant Wells Fargo estimates that
business at $1.1 billion of a $2.5 billion U.S. vapor market
including e-cigarettes. Particularly bullish, it says vaping
could surpass smoking in the U.S. in the next decade.

Data gatherer Nielsen, which tracks retail sales but not
online or at specialty “vape shops”, says that for the 52 weeks
ended August 23 e-cigarette and tank revenue in the US grew
19 percent. But that was down from 125.5 percent growth for
the same period ending in 2013, 133 percent in 2012 and almost
1,103 percent for 2011.

Some predict regulation may slow that down further due to
fears vaping may become a gateway to smoking for kids, with
e-liquids in thousands of flavors with names ranging from the
quaint Apple Pie to the outlandish Zombie Juice.

A recent drop in the value of a group of e-cigarettes
companies trading mostly over-the-counter on the Pink Sheets in
the U.S. highlights the growing caution.

Nine companies had a combined market capitalization of
$743.3 million at the close of trading on Wednesday, down nearly
60 percent from a March peak of $1.84 billion, though still up
on a year ago.

Electronic Cigarettes International Group, by far
the largest, saw its shares close at just $5.50 on Wednesday,
down from the high teens in March.

It went public in a reverse merger last year, and has since
done a string of deals as small players seek consolidation in a
market still home to hundreds of brands.

“The key driver is that by doing this, they’re better able
to compete with the tobacco companies,” said Mark Winkler of
Fleming Family & Partners, who advised British e-cigarette maker
Skycig on its sale to Lorillard in October for 30 million pounds
($49.58 million) plus future payments.

In May, Michigan-based ECIG filed for a follow-on public
offering to raise up to $149.5 million and in July announced a
$20 million investment from an arm of Egypt’s Mansour Group.

Shares in the second-biggest traded firm, 22nd Century Group
, have more than halved since its March high of $6.34,
even though its shareholders at the time of filings this summer
included funds managed by the likes of Vanguard, Fidelity and
TIAA-CREF.

BIG TOBACCO VS PHARMACEUTICALS?

The major tobacco companies do not face the same pressure,
since their investments in the sector are tiny compared with the
size of their traditional businesses and serve as a hedge
against declining tobacco sales.

British American, the world’s No. 2 tobacco firm, set up a
unit in 2011 to develop smokeless alternatives and bought UK
based CN Creative the following year. It sells an e-cigarette
called Vype in Britain, while Reynolds American, in
which it holds a large stake, is rolling out an e-cigarette
called Vuse across America.

U.S. Marlboro maker Altria Group bought Miami-based
Green Smoke for $110 million in April, and in July Lorillard
agreed to sell Skycig and Blu, which it bought for $135 million
in 2012, to Gauloises maker Imperial Tobacco.

Before exploding in the last four years, e-cigarettes were
simple devices largely sold on the Internet, so even though
there was venture capital and private equity interest, capital
needs were relatively modest.

Now that they grace shelves all along the high street, many
companies must invest in slotting fees, quality control, supply
chain and marketing to drive and keep market share. That crimps
cash flow, making them less attractive to private equity firms
who need near-term profits to service their debt, said Winkler.

And while some independent companies may still be able to
sell out to a bigger company or go public, he said there is
concern that many others may get trampled, leaving investors
with no exit strategy.

“There will be some independents who will be very
successful, but I anticipate that many may struggle to achieve
an exit at the end of the day,” Winkler said.

The healthcare industry may be some help.

NJOY, which has had several fund injections from private
equity and venture capital funds and others including Silicon
Valley heavyweight Sean Parker, has attracted interest from both
major tobacco and pharmaceutical firms, according to two sources
familiar with the matter. It was not clear which companies, or
whether any talks took place.

Buying e-cigarette makers may eventually make sense for
healthcare companies since they threaten the nicotine
replacement therapies offered by the likes of Pfizer and
GlaxoSmithKline.

BAT’s Nicoventures unit, in conjunction with Consort Medical
and Kind Consumer, has had a new nicotine inhaler
called Voke licensed in the UK as a medical product, the
companies said on Friday.

NJOY, which just launched new lines of rechargeable and vape
products in flavors like blood orange and butter crunch,
declined to comment on any such approaches, but CEO Weiss said,
“if the right type of investor approached us, I would have to
listen”.
(1 US dollar = 0.6203 British pound)

NEW YORK (Reuters) – Alison LePard, a 19-year-old college sophomore from Wellesley, Massachusetts, says that when she shops for clothes and accessories, her goal is a look that is uniquely hers. So she does a lot of mixing and matching.

“I don’t blindly follow what they put out,” LePard said of store displays. “I don’t want to wear just one brand. I don’t want to be a stereotype.”

She’s hardly alone. Recent surveys have found that members of the U.S. Millennial Generation – the roughly 80 million Americans born between 1977 and 2000 – pride themselves on their individuality, and shop accordingly.

Compared with their parents, millennials are far less likely to identify with a political party or to formally affiliate with a religion – key indicators of an independent streak – according to Pew Research Center. As shoppers, they are less attached to brands and more willing to create their own style, surveys by Nielsen, The Boston Consulting Group and other researchers have found.

This generational trait is forcing retailers to rethink everything from their merchandise and marketing to their dressing rooms and logos. Some companies, including H&M and Urban Outfitters Inc, have ridden the individuality wave while others, such as Abercrombie & Fitch and Aeropostale, have been slow to react and are paying the price.

At stake is the $600 billion (372 billion pounds) millennials spend a year in the United States, according to Accenture, a sum that’s projected to grow to an estimated $1.4 trillion in 2020, when the oldest of the cohort will be 43. Millennial men spend twice as much a year on apparel as non-millennial men, while millennial women outspent other generations by a third, the consultants said.

Abercrombie’s woes came into sharp relief last month when the company said it was shrinking its well-known logo and increasing its assortment of fashion for women, all to appeal more to 16- to 22-year-olds who don’t want to look like everyone else. The move came after 10 straight declines in quarterly same-store sales.

“They no longer want to be a walking billboard of a brand,” said Michael Scheiner, an Abercrombie spokesman. “Individualism is important to them, having their own sense of style.”

Other companies are also adjusting their strategies to reach this elusive group.

Gap Inc’s new ad campaign, with the facetious tag line, “dress normal,” is all about creating an individual style — the idea being that there is no normal. Aeropostale, for its part, says its new product lines by blogger Bethany Mota are meant to convey “authenticity, emotion and relevance.”

Mall owners have had to adjust, too. Indianapolis-based Simon Property Group Inc is now working with fashion magazines and fashion website Refinery29.com to entice millennial shoppers to the mall with videos, new designers and personalized advice.

“Not looking like everyone else is key to everything about what we do,” said Chidi Achara, Simon’s global creative director.

The drive to reach millennials comes during a difficult environment for retailers. Retail spending was flat in August, according to the U.S. Commerce Department, and household spending dropped by 0.1 percent in July, the first decline since January. In August, retailers ranging from Wal-Mart Stores Inc to Macy’s Inc cut their sales forecasts.

HOW MILLENNIALS SHOP

Thanks to the Internet and smart phones, millennials are more informed shoppers than older generations. More than 70 percent of 18- to 34-year-olds recently surveyed by The Intelligence Group said they research options online before going to a store.

Millennials spend a higher share of dollars online than other generations, according to market research and consulting firm NPD Group, though they still make 75 percent of their purchases at brick and mortar stores.

With vast amounts of information easily available, they are savvy shoppers who know how to compare price, quality and convenience.

Accustomed to building Facebook pages and other online identities, millennials are comfortable with the notion of mixing and matching different elements of their persona, a trait that carries over into their shopping choices, according to analysts and academics.

To reach this first generation of “digital natives,” it’s no longer enough for stores to offer a rack and a dressing room.

“People are looking to create a unique identity,” said Allen Adamson, an author and branding expert at Landor Associates. “They want to put together their own story rather than have someone else tell them.”

In addition to an inviting website and easy payment system, retailers are trying to make shopping more exciting for this over-stimulated generation. At H&M’s midtown Manhattan store, for example, shoppers can strut their stuff on the store’s fashion walk and then possibly have their video selected to be displayed outside.

Gap is stressing that same aspiration with its new “dress normal” ad campaign, which uses taglines such as “dress like no one’s watching” and “simple clothes for you to complicate.” Sales at Gap stores fell 5 percent in the last quarter.

The company said the ad campaign is aimed at customers who want to “dress for themselves.”

That certainly describes Brianne Casey, a 24-year-old New Yorker, who studied marketing and now works as an assistant to a buyer for a retail chain.

Casey said she shops at a variety of stores to get the best prices and follows fashion trends on blogs to see what’s hot. But in the end, she said, “I like creating my own style.”

(Reporting by Jilian Mincer; Editing by Eric Effron and John Pickering)

NEW YORK, Sept 10 (Reuters) – Alison LePard, a 19-year-old
college sophomore from Wellesley, Massachusetts, says that when
she shops for clothes and accessories, her goal is a look that
is uniquely hers. So she does a lot of mixing and matching.

“I don’t blindly follow what they put out,” LePard said of
store displays. “I don’t want to wear just one brand. I don’t
want to be a stereotype.”

She’s hardly alone. Recent surveys have found that members
of the U.S. Millennial Generation – the roughly 80 million
Americans born between 1977 and 2000 – pride themselves on their
individuality, and shop accordingly.

Compared with their parents, millennials are far less likely
to identify with a political party or to formally affiliate with
a religion – key indicators of an independent streak – according
to Pew Research Center. As shoppers, they are less attached to
brands and more willing to create their own style, surveys by
Nielsen, The Boston Consulting Group and other researchers have
found.

This generational trait is forcing retailers to rethink
everything from their merchandise and marketing to their
dressing rooms and logos. Some companies, including H&M and
Urban Outfitters Inc, have ridden the individuality
wave while others, such as Abercrombie & Fitch and
Aeropostale, have been slow to react and are paying the
price.

At stake is the $600 billion millennials spend a year in the
United States, according to Accenture, a sum that’s projected to
grow to an estimated $1.4 trillion in 2020, when the oldest of
the cohort will be 43. Millennial men spend twice as much a year
on apparel as non-millennial men, while millennial women
outspent other generations by a third, the consultants said.

Abercrombie’s woes came into sharp relief last month when
the company said it was shrinking its well-known logo and
increasing its assortment of fashion for women, all to appeal
more to 16- to 22-year-olds who don’t want to look like everyone
else. The move came after 10 straight declines in quarterly
same-store sales.

“They no longer want to be a walking billboard of a brand,”
said Michael Scheiner, an Abercrombie spokesman. “Individualism
is important to them, having their own sense of style.”

Other companies are also adjusting their strategies to reach
this elusive group.

Gap Inc’s new ad campaign, with the facetious tag
line, “dress normal,” is all about creating an individual style
– the idea being that there is no normal. Aeropostale, for its
part, says its new product lines by blogger Bethany Mota are
meant to convey “authenticity, emotion and relevance.”

Mall owners have had to adjust, too. Indianapolis-based
Simon Property Group Inc is now working with fashion
magazines and fashion website Refinery29.com to entice
millennial shoppers to the mall with videos, new designers and
personalized advice.

“Not looking like everyone else is key to everything about
what we do,” said Chidi Achara, Simon’s global creative
director.

The drive to reach millennials comes during a difficult
environment for retailers. Retail spending was flat in August,
according to the U.S. Commerce Department, and household
spending dropped by 0.1 percent in July, the first decline since
January. In August, retailers ranging from Wal-Mart Stores Inc
to Macy’s Inc cut their sales forecasts.

HOW MILLENNIALS SHOP

Thanks to the Internet and smart phones, millennials are
more informed shoppers than older generations. More than 70
percent of 18- to 34-year-olds recently surveyed by The
Intelligence Group said they research options online before
going to a store.

Millennials spend a higher share of dollars online than
other generations, according to market research and consulting
firm NPD Group, though they still make 75 percent of their
purchases at brick and mortar stores.

With vast amounts of information easily available, they are
savvy shoppers who know how to compare price, quality and
convenience.

Accustomed to building Facebook pages and other online
identities, millennials are comfortable with the notion of
mixing and matching different elements of their persona, a trait
that carries over into their shopping choices, according to
analysts and academics.

To reach this first generation of “digital natives,” it’s no
longer enough for stores to offer a rack and a dressing room.

“People are looking to create a unique identity,” said Allen
Adamson, an author and branding expert at Landor Associates.
“They want to put together their own story rather than have
someone else tell them.”

In addition to an inviting website and easy payment system,
retailers are trying to make shopping more exciting for this
over-stimulated generation. At H&M’s midtown Manhattan store,
for example, shoppers can strut their stuff on the store’s
fashion walk and then possibly have their video selected to be
displayed outside.

Gap is stressing that same aspiration with its new “dress
normal” ad campaign, which uses taglines such as “dress like no
one’s watching” and “simple clothes for you to complicate.”
Sales at Gap stores fell 5 percent in the last quarter.

The company said the ad campaign is aimed at customers who
want to “dress for themselves.”

That certainly describes Brianne Casey, a 24-year-old New
Yorker, who studied marketing and now works as an assistant to a
buyer for a retail chain.

Casey said she shops at a variety of stores to get the best
prices and follows fashion trends on blogs to see what’s hot.
But in the end, she said, “I like creating my own style.”

(Reporting by Jilian Mincer; Editing by Eric Effron and John
Pickering)

(Reuters) – Like millions of Americans, Darnel Ware needs to save money, even if it’s 40 cents on a bag of flour.

He searches for those savings during his daily visits to the Family Dollar Store near his home in Fraser, Michigan, sometimes stopping by as many as 10 times a week “if there are things I need,” said the 51-year-old home care provider. “I buy a lot of everything; merchandise and food products.”

He said he typically spends about $30 a trip on items like the soft drinks, paper cups and cookies he bought on a recent afternoon at the small store in a strip mall alongside other discount retailers and small factories five miles from Detroit.

The small but frequent purchases of low-income customers such as Ware add up: Family Dollar Stores,, which operates about 8,200 stores in mainly urban sections of the U.S., is the target of an $9 billion cash takeover offer from rival Dollar General and an $8.5 billion cash and stock offer from Dollar Tree. Both competitors are betting not only on the health of the deep discount retail sector but also on the intractability of poverty in America.

Mid-market retailers like Wal-Mart Stores Inc, Macy’s Inc and J.C. Penney Company Inc have been struggling in recent years as consumers have been slow to return to their pre-recession, freer spending ways. On Wednesday, Target said it was cutting its full-year earnings and slashing prices.

But the popularity of so-called dollar stores is growing. Shopping by the 46.5 million Americans living below the poverty line poor helped boost the annual U.S. market for deep discount stores by 45.7 percent to $48.2 billion between 2008 and 2013, according to London-based market researcher Euromonitor International. The firm projects the sector to grow to $57 billion in 2018. The U.S. Census sets the poverty line at $24,000 a year or less for a family of four.

Such forecasts help explain the battle over Family Dollar, the number-two deep discount chain. Market leader Dollar General Corp on Monday made its $78.50 a share bid, which Family Dollar rejected on Thursday, citing antitrust concerns. In July, the third-ranked chain, Dollar Tree Inc, bid $74.50 a share. Family Dollar has said it prefers Dollar Tree’s lower offer.

The deep discounters’ reliance on poor Americans, who made up 15 percent of the U.S. population in 2012, compared with 12.5 percent in 2007, has been validated by investors. From 2000 to now, as the poverty rate rose 11.3 percent to 15 percent, Family Dollar’s stock price rose by about 300 percent.

Against that backdrop, the bidding over Family Dollar, said Kurt Jetta, CEO of retail analyst Tabs Group, reflects an “acceptance that there will be a sizable and perhaps growing low-income population that makes dollar stores an ongoing opportunity.”

Not all analysts agree that dollar stores are poised for continued growth. Roger Davidson, a former grocery executive at Wal-Mart, Whole Foods Market Inc and Supervalu, said dollar stores face increasing competition from other discounters, including Walmart itself, which is opening smaller neighborhood stores.

“Consolidation is now the only path to growth in sales and earnings,” he said.

LIMITED SIZE, LIMITED SAVINGS

Deep discount dollar stores have been around for decades, but have grown by about 10,000 to about 24,500 stores in the last decade. Combined sales of the big three – Family Dollar, Dollar Tree and Dollar General – have grown to $35 billion.

Dollar stores offer their customers low prices, but not necessarily the best value. For example, Huggies diapers this week were selling in a Family Dollar store for 27 cents a diaper in an 80-diaper pack. But at Walmart, shoppers could pay 17 cents a diaper if they purchased the larger 120-diaper pack.

The poor often don’t have the funds needed to buy in bulk, experts said. Nor do they necessarily have the wherewithal to travel to often remote big-box stores like Target and Walmart.

The dollar stores play the role of “fill in” retailers, said Joan Storms, a retail analyst at Wedbush Securities. Their customers try to do most of their shopping at places like Walmart when they get paid or receive benefits, she said, but they pick up necessities and other items at the deep discount stores.

The expiration of unemployment benefits for millions of jobless Americans and a reduction in food stamp payments last year also helped the deep discounters, analysts said. With less cash on hand to make regular “big shops” at places like Walmart, these consumers are more likely to turn to the dollar stores to buy a few items at a time to feed their families.

With wages stagnant, even middle-class consumers follow this shopping pattern, giving dollar stores a source of revenue not wholly dependent on the lowest-income Americans. In real dollars, the median U.S. wage has declined since 1999, when it was $56,080 compared with $51,017 in 2012.

Joseph Garrett, 58, a welfare-fraud investigator for New York City, was among the shoppers at a Dollar Tree Deals location in Manhattan’s Harlem neighborhood recently. He said he does most of his grocery shopping elsewhere but uses the dollar store when he’s looking for a bargain.

The store was crowded with families shopping for groceries and school supplies. Backpacks were prominently displayed but absent the brand names of merchandise typically found at Target or Walmart. Most of the canned food also was private label rather than well-known national brands.

“Everything is going up,” said Garrett. “So you’ve got to save what you can.”

(Additional reporting by Anjali Athavaley in New York and Peter Suciu in Detroit; Editing by Eric Effron and John Pickering)